Interpublic Group (IPG) posted solid first quarter results but said “significant” cost cutting and “regrettable” jobs losses are needed to prepare for the coronavirus downturn.
The company announced organic growth of 0.3% in the first quarter with net revenue down 1.6% to $1.97 billion, but said the result is not indicative of the rest of the year. Organic revenue in Asia-Pacific, which includes Australia, was down 5.3%.
“There is no question that the impact of crisis is having on the global economy will be reflected in the revenue of our industry,” CEO Michael Roth told analysts in a briefing.
“The second quarter is not going to be pretty.”
Roth says staff reductions will be unavoidable in the face of the pressures almost every business is facing.
Salaries have already been shaved by up to 25%
“These previously announced cuts have been increased and are deeper than any else we have seen in the industry,” says Roth.
“We have also identified very significant corporate centre cost savings, which are already being actioned.
“We are, of course, doing what we can to minimise the impact on our people to the greatest degree possible. But, as you already have seen at some of our agencies, we will regrettably see it again in order to align costs with new revenue reality.”
Some client sectors look likely to be at a standstill for the foreseeable future.
However, IPG is seeing demand for the advisory side of the business, especially public relations.
“We’re seeing opportunities for crisis communications and strategic services,” says Roth.
Other parts of the business such as experiential and sports marketing are being hit.
“Our creative global networks are also seeing varied impacts that are dependent on client mix,” he says.
“Nonetheless, we continue to see strong engagement with clients, a limited amount of virtual new business activity and early indicators from Asia of what it will take to put our people back to work in a way that is both safe and productive.
“Agencies have put new creative product into the market over the last six weeks demonstrating our ability to execute high concept work even when working remotely.”
Notable account wins in March and April include Weber Shandwick with a significant assignment from Sanofi Pasteur.
Initiative brought in new international brands from Pernod Ricard as well as a major new biopharmaceutical company not yet announced.
FCB New York won Mike’s Hard Lemonade, Birds Eye selected McCann London and MullenLowe Singapore landed that country’s Navy account.
“What is noteworthy is that all these accounts were won or retained after the onset of the health crisis and demonstrates how, even when working remotely, we’re able to move the business forward,” says Roth.
Outlook
Roth says the June quarter should be the worst of the year.
“We have an assumption and ... that changes by the hour based on the way our clients spend and how they’re looking at it,” he told analysts.
“But we see starting a recovery in the third quarter at some point. And then seeing a stronger recovery, somewhat in the fourth quarter going into next year.
“We have some clients that are doing quite well in this environment … the healthcare side of the business.
“It’s actually 28% of our business, and so far, knock on wood, is performing well.
“Our existing client demands are still there and it’s impressive that we are delivering good work in this environment remotely.”
However, he cautioned on making firm forecasts.
“If you look at everybody else who is trying to forecast, the answer is you can’t,” he says.
“But you have to at least take an attempt at what you’re hearing and seeing.
“Clients, frankly, are wrestling with the timing of when they come back or how they spend their dollars.”
The first quarter numbers:
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